At Davos, business leaders warn that industry crackdown will hurt recovery

By Reuters
Thursday, January 28, 2010

DAVOS, SWITZERLAND -- Global business leaders warned Western governments on Wednesday that a populist crackdown on the financial industry could crimp a fragile recovery from the worst recession since the 1930s.

The worried response to President Obama's plans to curb big banks in the United States and a British government assault on bankers' pay came as 2,500 business leaders and policymakers met at the annual World Economic Forum in the Swiss ski resort of Davos.

French President Nicolas Sarkozy delivered a tirade against the excesses of financial speculation, deregulation, the bonus culture and accounting tricks that he said had driven the world economy to the brink of ruin a year ago.

Only concerted government action had saved the world from financial meltdown, Sarkozy said, adding that the first glimmers of recovery should not be a signal to let up on regulatory reforms.

"We can only save capitalism by refounding and moralizing it," he said in a keynote address, warning central banks against an abrupt withdrawal of stimulus measures, which might trigger a collapse of the world economy.

Sarkozy endorsed Obama's proposed curbs on Wall Street but stressed the need for a consensus on financial regulation in the Group of 20 major economies.

Obama jolted markets on Jan. 21 with proposals to force commercial banks to cut ties with hedge funds and private equity funds and to stop proprietary trading. He also said he wanted the financial sector to pay for a substantial taxpayer bailout.

Barclays President Bob Diamond challenged Obama's effort to limit the size of big banks and restrain risk-taking. "If you step back and say large is bad, and we move to narrow banking, the impact of that on banks and on global trade, the global economy, would be very negative," he said during the opening session.

But the specter of uncoordinated, heavy-handed regulation and government intervention in the economy loomed largest for many business leaders. Uncertainties over whether China will rein in its feverish pace of growth and concerns about Greece's debt crisis also weighed heavy.

Studies produced for the conference showed global economic confidence on the rise after deep gloom last year.

A survey by accountancy giant PricewaterhouseCoopers of 1,200 chief executives in 52 countries found that 39 percent of industry bosses aimed to hire extra staff in 2010, while 25 percent planned more job cuts, down from nearly half who slashed jobs last year.

But recruitment will be on a modest scale and mostly in booming emerging economies such as China and India, the report found.

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